The document discusses the relationship between telecommunications and economic growth in India. Extensive studies show a strong correlation between GDP per capita and telephone density, indicating telecommunications contributes to economic growth. The Indian telecom industry is now the second largest market in the world and has been a significant contributor to India's GDP and job growth. However, the entry of Reliance Jio in 2016 dramatically changed the industry, shifting it from a voice to data-focused market and leading to industry consolidation due to increased competition. A recent ICRIER study found a 10% increase in internet subscribers could lead to a 2.4% increase in GDP growth rate, demonstrating the economic benefits of recent developments in India's telecom sector.

1. TELECOMMUNICATIONS
AND ECONOMIC GROWTH
AJAY BHARTIYA
BRANCH- CIVIL
ENROLLMENT NO- 00125503415

2. Relation between telecom and
economic growth of the country
Extensive studies from the 1960s to the present have documented a strong correlation between
GDP per capita and telephone density indicators. The data for all countries generally fall within a
small band along a straight line on a logarithmic chart. Recent statistical tests for the direction of
causality by Hardy (1980), DRI/McGraw-Hill (1991) and Norton (1992) show that the growth of
telecommunications investment or penetration is a statistically significant predictor of economic
growth, and vice-versa: indicators of economic growth are significant predictors of
telecommunications investment. Telecommunications is thus considered to be both a cause and a
consequence of economic growth. According to Norton (1992), "The data in this study...are
consistent with the proposition that telephones provide substantial growth- and investment
enhancing activity and thus facilitate economic growth." Input-output studies of the economic
impact of telecommunications also show that it makes substantial contributions to the efficiency
of the economy.

3. Indian telecom sector second largest market in world;
significant contribution to country’s GDP growth
The Indian telecom industry is passing through complex times. It has been almost two decades
since the Atal Bihari Vajpayee government heralded the telecom revolution with the formulation
of the National Telecom Policy (NTP) in 1999. When the policy was enforced, India merely had
a million subscribers. Since then, the industry has grown on to become the second-largest
telecommunications market in the world that is now well past the billion-mark in terms of
subscribers. Over the years, the sector has become a significant contributor of the country’s
GDP and job growth. According to one estimate, it contributed 6.5 per cent of India’s GDP
while providing direct and indirect employment to four million people in 2015. The industry has
also been one of the fastest-growing sectors in the country with a compound annual growth rate
(CAGR) of 7.3 percent over the last decade. This is the result of the dynamic and hyper-
competitive nature of the Indian telecom market. Competition among telecom companies has
risen to the extent that tariffs are one of the lowest in the world.

4. However, the pace of transformation of the industry over the course of last year has been
astonishing, even by its own standards. It all began in September 2016 with the entry of Reliance
Jio into the telecom fray that was already saturated with giants such as Bharti Airtel, Vodafone
India, Idea Cellular and BSNL, along with other smaller players. Until then, the industry had
derived 75 percent of its revenue from voice and as each operator tried to gain a market share by
offering competitive prices, it seemed to have bottomed out reaching as low as $0.01 per minute.
Jio’s entry last year changed the market in more than one way. First, the battle shifted from voice to
the data front. Reliance had spent the last few years building the largest LTE (long term evolution)
network in the country that allowed it to provide Voice over LTE services at virtually no extra cost
— enabling it to offer free calling and only charge for data.
The second significant impact of Jio’s entry has been a consolidation wave that has swept the
industry due to escalated levels of competition. This has been so intense that scale has become a
necessary prerequisite. In fact, to quantify the increase in market concentration, we calculated the
Herfindahl-Hirschman Index (HHI) for the telecom market before and after the entry of Jio using
TRAI data.

5. ICRIER study on telecom
sector
An ICRIER study recently pointed out that a 10 percent increase in the rate of growth of
Internet subscribers will result in a 2.4 percent increase in the GDP rate. Therefore, there will
be clear economic gains from the industry developments that have recently taken place.
India’s telecom revolution has been the driving force of the economy since the turn of the
century and it has done well to evolve with the times and climb the data bandwagon. It has
largely gone unnoticed, but this year India has also become the highest mobile data user in the
world with monthly usage exceeding a billion GB. As data accessibility of Indian consumers
increases, it creates a multitude of opportunities for the government to reach out and enable
social progress by providing services that were previously not feasible. Tapping into these
opportunities can unlock the next phase of growth for the Indian economy.